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Latvian parliament paves way to euro switch

Latvia, which wants to adopt the euro in 2014, passed a fiscal discipline law yesterday (31 January) and another setting out guidelines for the proposed currency switch, key steps to satisfy the European Union that it is on track to join the eurozone.

Prime Minister Valdis Dombrovskis said he now plans to ask the European Commission and the European Central Bank for euro-readiness assessment reports in the first half of March.

Based on the two convergence reports, EU leaders will make a final decision this summer on Latvia's eurozone membership.

Latvian officials are confident the country will meet the Maastricht economic criteria to demonstrate its readiness.

"We are currently fulfilling the Maastricht [euro adoption] criteria with a considerable reserve, therefore I don't see any basis on which this convergence report would be negative," Dombrovskis told reporters at parliament.

The fiscal discipline law, which stipulates government debt remains below 60% of output and automatic correction rules will kick in if the budget is not in balance, was passed by 61 out of 100 members of parliament.

The law detailing the switchover was supported by 52 members while 40 voted against. It says both the lat and the euro will be in circulation for the first two weeks after Latvia officially joins the eurozone.

The government sees the euro as a safer currency than the lat despite the sovereign debt crisis that has squeezed the bloc over the past three years.

In 2008-09, the global recession saw Latvia's economy shrink by a fifth as it resisted pressure to devalue the lat and turned to tax hikes and wage cuts to restore its competitiveness.

The country has since bounced back to rank as the fastest growing economy in the EU.

However, popular support for the currency switch remains low as people worry about rising prices and the loss of their national currency, a symbol of the Baltic state's independence from the Soviet Union.

Finance Minister Andris Vilks had previously said the government would request the assessment in February. Dombrovskis said on Thursday the delay was purely for technical reasons.

Latvia would become the 18th eurozone member state.

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